Stocks rise as dollar falls, gold rallies on Fed commentary

By Sinéad Carew and Amanda Cooper

NEW YORK/LONDON (Reuters) – MSCI’s global stock index advanced on Tuesday while the dollar fell as a Federal Reserve official signaled that the U.S. central bank was done raising rates and could even consider rate cuts if inflation keeps easing.

The U.S. dollar index hit a 3-1/2 month low and was on track for its biggest monthly drop in a year as investors took the view that growth in the world’s largest economy is starting to slow down, with the market starting to price in a rate cut by the first half of the year.

Fed Governor Christopher Waller bolstered these bets by flagging the possibility of lowering the Fed policy rate in the months ahead if inflation continues to come down. Waller also said he was “increasingly confident” the current interest rate setting would prove adequate to lower inflation to the Fed’s 2% target.

Another Fed governor, Michelle Bowman, said the central bank will likely need to raise borrowing costs further in order to bring inflation back down to its target.

Traders appeared to take their cues from Waller with increased bets for the first rate cut taking place as soon as March with the probability for a 25 basis-point cut last at nearly 33%, up from 21.5% on Monday, according to the latest data from CME Group’s Fedwatch tool. The majority expected a cut of at least one notch in May, according to CME data.

The market saw Waller’s comments as the first sign the Fed “recognizes they might be able to cut rates next year” while other officials “took some of the euphoria” away, according to Anthony Saglimbene, Ameriprise chief market strategist.

And Saglimbene said, “It’s normal you’ll see stocks consolidate in the last few days of a really strong month. … For the rest of the year, momentum is biased to the upside.”

While trading in stocks was choppy, Wall Street indexes managed to close higher. The Dow Jones Industrial Average rose 83.51 points, or 0.24%, to 35,416.98, the S&P 500 gained 4.46 points, or 0.10%, to 4,554.89 and the Nasdaq Composite added 40.73 points, or 0.29%, to 14,281.76.

MSCI’s gauge of stocks across the globe gained 0.27%.

Also on Tuesday, a survey showed U.S. consumer confidence rose in November after three months of declines, though households still anticipated a recession over the next year.

Later this week the spotlight will be on the U.S. October personal consumption expenditures report (PCE), which includes core PCE, which is the Fed’s preferred measure of inflation. Also euro zone consumer inflation figures should give further clarity on where prices and monetary policy are headed there.

After the Fed commentary, U.S. Treasury yields dipped with benchmark 10-year notes down 6 basis points to 4.328%, from 4.388% late on Monday.

In currencies, the dollar index fell 0.368%, with the euro up 0.32% to $1.0988.

The Japanese yen strengthened 0.82% versus the greenback at 147.47 per dollar, while Sterling was last trading at $1.2694, up 0.55% on the day.

With some encouragement from the weaker dollar, spot gold prices were up 1.4% at $2,040.79 an ounce after hitting their highest level since May in their fourth consecutive gain.

Oil prices settled higher on Tuesday on the possibility that OPEC+ will extend or deepen supply cuts, a storm-related drop in Kazakh oil output and the weaker U.S. dollar.

U.S. crude settled up 2.07% at $76.41 per barrel and Brent settled at $81.68, up 2.13% on the day.

(Additional reporting by Sinéad Carew, Gertrude Chavez-Dreyfuss and Chuck Mikolajczak in New York, Amanda Cooper in London, Ankur Banerjee; Editing by Frances Kerry, Will Dunham, Marguerita Choy and Chizu Nomiyama)